Assessing Corn Demand for Domestic Ethanol Blending

This week University of Illinois Ag Economist Darrel Good has explored just how corn demand could be affected by U.S. EPA’s proposed Renewable Fuel Standards. Todd Gleason has more…

Since the fall of 2005 the number of bushels…
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Since the fall of 2005 the number of bushels of corn used by the ethanol industry has jumped sharply. Back then it was about two billion bushels. It topped out at around five billion bushels with the 2011 corn harvest and this year is on track to hit five-point-two-billion. This demand driven almost exclusively by ethanol… and not by the co products. University of Illinois Ag Economist Darrel Good says going forward there are few different directions the industry might take depending on a series of factors.

Those factors include the EPA’s annual Renewable Fuels Standards (RFS) and the methods for implementing those standards, the magnitude of domestic motor fuel consumption, the economics of ethanol blending, the quantity of domestic ethanol produced from feed stocks other than corn, and the magnitude of ethanol imports and exports.

Cutting to the chase… here’s how Good sees US EPA’s proposal.

Good :35 …a set back is certainly not expected.

Quote Summary - At this juncture, it appears that domestic consumption of conventional ethanol in 2015 and 2016 will likely not decline from the 13.254 gallons consumed in 2014 if domestic gasoline consumption remains robust. Additionally, export demand for ethanol is expected to remain at or above the 850 million gallons of 2014. Exports during the first four months of 2015 pointed to annual exports over 900 million gallons. The demand for corn for ethanol production appears to be on solid footing for the next 18 months. While growth may be limited, a set-back is not expected.

The RFS for 2014 is obviously being proposed after the fact and reflects production, consumption, and trade conditions that actually unfolded in 2014 writes Darrel Good on the Farm Doc Daily website in support of this view. He says the EPA estimates that 13.43 billion gallons of ethanol were used domestically in 2014. The proposed RFS for conventional ethanol was set at 13.25 billion gallons

For 2015 the EPA has proposed a conventional ethanol mandate of 13.4 billion gallons, only 146 million gallons higher than actual consumption in 2014. The modest increase reflects expectations that total gasoline consumption will increase by about 1.4 percent, but the ethanol inclusion rate will decline from 9.84 percent in 2014 to 9.66 percent in 2015 so that the effective blend wall declines from 13.43 billion gallons in 2014 to 13.36 billion gallons in 2015. If cellulosic and other advanced ethanol consumption reaches 282 million gallons, the effective blend wall would limit consumption of conventional ethanol to only 13.078 billion gallons. The difference between the proposed standard of 13.4 billion gallons and the effective blend wall for conventional ethanol of 322 million gallons would represent a gap that would have to be met by a combination of consumption of gasoline with higher ethanol blends (E15 or E85), consumption of additional advanced biofuels (biodiesel), and use of some RINs stocks.

For 2016 the EPA projects the effective ethanol blend wall at 13.46 billion gallons. If consumption of cellulosic and other advanced ethanol reaches 406 million gallons, the effective blend wall would limit consumption of conventional ethanol to only 13.054 billion gallons. The difference between the proposed standard of 14 billion gallons and the effective blend wall for conventional ethanol would leave a gap of 946 million gallons to be met with higher ethanol blends, advanced biofuels, or RINs stocks. The EPA projections for 2015 and 2016 suggest that increases in domestic consumption of conventional ethanol above that of 2014 will depend on the ability of higher ethanol blends to compete with alternatives for meeting the gap between the mandated levels of consumption and the lower effective 10 percent blend wall for conventional ethanol.